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HomeInvestors HealthThese States Won't Tax Your Social Security, 401(k), IRA, or Pension Income

These States Won’t Tax Your Social Security, 401(k), IRA, or Pension Income



After a lifetime of contributing to Social Security, building up a retirement plan, or earning a pension, you may be bracing for a big tax hit in retirement. Now you’re ready to punch your last time card and your state has its hand out for some tax dollars as well.

Or does it? While federal taxes are unavoidable, some states are much kinder than others when it comes to taxing retirement income. Others don’t tax it at all.

Key Takeaways

  • Illinois, Iowa, Mississippi, and Pennsylvania are considered to be the most tax-friendly states for retirees.
  • Thirty-eight states don’t tax Social Security income.
  • Thirty-seven states don’t tax most military retirement pay.
  • Fifteen states exempt pension income from state taxes.
  • Nine states have no income tax at all.

States That Don’t Tax Retirement Income

Arkansas

A man fishing the Arkansas River.

Getty Images/Samuel Wells 


Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and IRA distributions received after the age of 59½ or because of death or disability. It also doesn’t tax Social Security income or tax military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won’t face additional tax burdens.

Illinois

Courtesy of Enjoy Illinois


Illinois is another state that is friendly to retirees. The state exempts pension income, 401(k) and IRA withdrawals, Social Security benefits, and military retirement pay from state taxes. However, Illinois does tax other investment earnings and taxes estates and inheritances.

Iowa

A colorful fall scene in Burlington, Iowa.
Travel Iowa Tourism

Iowa recently updated its tax laws to be more retirement-friendly. As of January 2023, the state no longer taxes pension, 401(k), or IRA income for residents over age 55. If you qualify, you can enjoy tax-free retirement income starting at age 55.

Two years later, on Jan. 1, 2025, the state transitioned from a graduated tax system (top rate of 5.7%) to a flat tax system, with a rate of 3.8%. Also, the state no longer has an inheritance tax as of 2025.

Mississippi

Gulfport, Mississippi.

Joe Raedle / Staff / Getty Images


Mississippi spares retirement plan distributions, pension income, Social Security income, and military retirement pay from state taxes. Early distributions from retirement plans generally don’t qualify for exempt status. This state doesn’t have an estate or inheritance tax, either.

New Hampshire

Arethusa Falls is the most dramatic waterfall in New Hampshire, so make it a “must” on your tour.
Media photo courtesy of the New Hampshire Division of Travel and Tourism

New Hampshire doesn’t tax Social Security or pension income although it does tax retirement account distributions that qualify as interest or dividends. This state doesn’t have an income tax on earned wages and most distributions count as income so they’re exempt.

Notably, New Hampshire repealed its tax on interest and dividends as of Jan. 1, 2025, making it even more attractive for retirees. Estate and inheritance taxes are also absent in New Hampshire.

Pennsylvania

Pocono Lake, Pennsylvania.

Roy Morsch/Getty Images


Retirees in Pennsylvania benefit from a lack of state taxes on Social Security, pension income, and retirement plan distributions. In addition, Pennsylvania has a flat income tax rate of 3.07% on earned wages, one of the lowest in the nation. Eligible retirees can also access a property tax/rent rebate program, adding to the state’s appeal.

Pennsylvania offers a property tax/rent rebate program to seniors.

South Carolina

South Carolina’s UFO Welcome Center is a welcome reprieve for UFO enthusiasts.
Rachid Dahnoun/Aurora/Getty Images

South Carolina is another state that doesn’t tax Social Security income. As of tax year 2022, all military retirement pay is exempt from state income taxes.

For those over age 65, the first $10,000 of retirement plan income is exempt from state tax, and the exemption drops to $3,000 for younger retirees. South Carolina also offers a $15,000 state tax deduction for those 65 and older.

States With No Income Tax

If you live and/or work in one of the following nine states, you won’t need to worry about state income taxes on any retirement income:

  • Alaska
  • Florida
  • Nevada
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington (taxes only capital gains of high earners)
  • Wyoming

These states offer automatic tax relief for retirees by not taxing any retirement income. It’s also worth noting that some of these states may still levy other taxes, such as property taxes or sales taxes, to make up for the lack of income taxes.

At What Age Do You Stop Paying Taxes on Your Pension?

In the U.S., there is no age you stop paying taxes on your pension as taxes are not determined by age. Most pensions will be subject to federal income tax and state income tax, depending on the state. Additionally, at age 73, you must start taking required minimum distributions from tax-deferred accounts.

How Can I Reduce Taxes in Retirement?

There are a few strategies you can incorporate to help reduce taxes in retirement. You should start by planning your withdrawals strategically. You should first withdraw from taxable accounts and then tax-deferred ones, like 401(k)s and IRAs. This allows tax-advantaged accounts to grow longer while keeping taxable income lower early on.

Keep in mind that required minimum distributions (RMDs) begin at 73, so converting some traditional IRA money to a Roth IRA beforehand can reduce future tax burdens because Roth IRAs are not subject to RMDs.

Consider delaying Social Security benefits till 70, as that will increase your benefits but also keep taxes lower early on. Donating to charities also reduces taxes and can be an option for you. Lastly, living in a tax-friendly state will reduce your taxes as will certain medical deductions.

How Is Social Security Taxed in Retirement?

Social Security can be taxed in retirement depending on your income. If your combined income, which includes Social Security benefits, nontaxable interest, and adjusted gross income, is above a certain threshold, you will be subject to income tax. For single filers, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. If above $34,000, up to 85% of your benefits may be taxed.

The Bottom Line

State taxes on retirement income vary widely, but several states make life easier for retirees by offering significant tax breaks on Social Security, 401(k) withdrawals, IRA distributions, and pensions.

If you live in one of these states—or better yet, one of the nine states without any income tax—you’ll keep more of your hard-earned retirement income. While tax laws can change, it’s important to consider these factors when deciding where to retire.



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